Article in globeDANGER PAYS
KONRAD YAKABUSKI
00:00 EST Friday, Aug 25, 2006
If your image of the security business is Sam Spade helping out a dame in distress, Stéphan Crétier would like to give you a serious fast-forward. The North American security industry may indeed still be dominated by thousands of small outfits headed by retired big-city detectives, but Crétier is rewriting the scene in a series of rapid-fire acquisitions. Crétier, the chief executive officer and largest shareholder (with 25%) of Montreal-based Garda World Security Corp., aims to make his company one of the globe's top three security firms within the next decade. He's in every part of the business, from private investigation and executive protection--the stuff of suspense thrillers--to the more pedestrian (but no less dangerous) work of transporting cash and valuables.
Crétier's limitless ambition would seem laughable, were it not for his dead-serious demeanour when he predicts that little Garda (fiscal 2006 revenues of $260 million) will soon be as synonymous with security as global titans Securitas AB ($8.3 billion [U.S.] in sales in 2005), Group 4 Securicor PLC (£4.1 billion) and Brink's Co. ($2.5 billion [U.S.]). And you'd want to put stock in Garda's sales, which will more than double this year to $650 million, while its payroll tops 19,000. You'd also consider that Garda has made more than 10 acquisitions in the past 18 months alone, becoming the leading security player in Canada overnight. And, finally, you'd weigh the facts that Garda has just raised more than $100 million in new equity, has little debt and enjoys the ability to borrow in excess of $200 million. "I have the [financial] means to have a little fun," says Crétier, a fighting-trim 43-year-old. "Besides, if the Swedish [Securitas] and the Danish [Group 4] can become global leaders,I see no reason why, by the time I'm 50, a Québécois can't be in the top three." Crétier's got more than his own bravado on his side. It's hard to think of any industry with better prospects for growth than private security. If Canadians still seem more blasé than most about their safety, the rest of the world is on chronic orange alert. Since 9/11, the security business has been growing by double digits annually. In the U.S., it's now unthinkable that a senior executive of a major corporation, much less the CEO, would travel without a private security detail--and that's only after an advance team checks out hotels, restaurants and routes from the airport.
"Five years ago, executive protection centred around just the CEO. Now, anybody--a director or a VP--needs it," says Marene Allison, security head at a New Jersey-based pharmacy benefits firm and a member of the board of the American Society for Industrial Security International, which represents 34,000 security executives. "There's terrorism, yes. But there's lots of other reasons, too," Allison says. "Executive kidnappings purely for financial gain are a big problem, especially in South America. It used to be that kidnappings occurred there for political reasons. Now, it's just for the ransom money." Little wonder that many insurance companies, which usually end up with the ransom bill, insist on extensive protection for travelling executives.
Securing office towers also presents an obvious business opportunity for Garda, given that Canada is well behind international trends. In many Canadian towers, the CEO's office is only a short, unsupervised elevator ride away for anybody wandering in off the street; in New York, no unwanted visitor could get past the lobby. Canada has a lot of catching up to do, too, when it comes to protecting strategic assets. Last year, for instance, Hydro-Québec, the country's largest electrical utility, found itself scrambling after a trespassing Radio-Canada journalist revealed an almost total lack of security at its dams in Northern Quebec. Garda was ready when the call came from the utility. "Canadians have a talent for downplaying security threats," laments John Thompson, a security expert and president of the Toronto-based Mackenzie Institute. "We've been very slow to wake up to the new realities. The [1985] Air India bombing killed 329 people--two-thirds of them Canadian citizens or residents. And yet, we immediately thought of it as someone else's problem."
It's not as if you could count on the Mounties, anyway. Companies suspecting rogue employees of fraud increasingly prefer to deal with the matter internally by hiring private investigators. Ditto for background checks on employees or business associates. And what if a family member finds himself in Miami when a hurricane hits, or is caught in the crossfire in Lebanon? Provided you have the means, you'll have a better chance of rescuing him quickly by calling Garda rather than by going through FEMA or the Canadian embassy. "This kind of private security has been growing by leaps and bounds," says Thompson. "The police are overburdened; if you dial 911, you probably won't see them for quite a few minutes. And unlike the police, private security is not accountable to the community as a whole; they're accountable to their clients."
U.S. consultant Freedonia Group estimates the size of the private security business in the United States at $37 billion (U.S.) in 2004. Garda pegs the Canadian market at $4 billion. By 2009, the U.S. market alone will have grown by 43%, to $53 billion (U.S.), according to Freedonia. But that's only half the story. Security Management magazine recently warned readers about the risks of buying "cheap" security. This is where Garda's $67-million (U.S.) purchase last November of the gold-standard Vance International fits in. The Virginia-based firm, founded by Chuck Vance, a former Secret Service agent and son-in-law of former president Gerald Ford, practically invented the executive protection business. Previous clients (it would be a betrayal of Vance's raison d'être to name existing ones) include Bill Gates, Arnold Schwarzenegger, Henry Kissinger, Nelson Mandela and Imelda Marcos. Vance did work for this year's soccer World Cup and for the Athens and Torino Olympics; it's booked for the 2008 Beijing Games. It's got a 350-person office in the Kurdistan region of Iraq, protecting oil fields and oil company executives. And Vance is a leader in Latin America, where it guards oil and mining execs and rich families.
In 2002, Vance was sold to industrial conglomerate SPX Corp. for what, at the time, seemed like a hefty $67 million (U.S.). That Garda paid the same price three years later for a firm whose revenues had grown to $155 million (U.S.) from $95 million (U.S.) might be a worrying sign to some investors. But industry analysts aren't fazed. The business suffered under SPX, better known for building ventilation systems than for providing corporate espionage services. Garda is a security provider, period, and should be able to wring synergies out of Vance's operations, as well as develop the business.
At least, that's the plan. There's no hiding the fact that capitalizing on Vance will be Crétier's biggest test so far. Either he pulls it off, putting him in good stead to realize his greater ambition, or Garda becomes just another corporate casualty that grew too big, too fast. Crétier, of course, doesn't see it that way. "If you ask me, I think we're going slowly." He's dead serious about that, too.
From outside, Crétier's office actually has throwback atmosphere in spades: It's in the bowels of Montreal's old Griffintown, a rundown reminder of the Industrial Age, on a back street called rue Barré--literally "Road Closed." But an old-school dick would feel quite out of place inside Garda's bright and busy loft-like headquarters. In Crétier's office, the chairs are Philippe Starck, not police issue. A deco-inspired red leather sofa-and-chair set sits on bleached hardwood floors. Crétier's sparsely littered desk--all 1.4 tonnes of it--is made of granite. They're stylish surroundings for the Quebec-born boy of working-class Italian and Swiss immigrants.
As a young man, Crétier's single-mindedness focused on his dream of becoming a major-league baseball umpire. He moved to Florida to go to umpire school--and to do an MBA at the University of Florida, just in case his ambitions didn't pan out.
By choice or fate, they didn't. Crétier worked as a minor-league ump while attending U of F, but returned to Montreal in 1989. He got a job at a local security concern, but struck out on his own in 1995 with a firm called Trans-Canada Security. The firm went public in 1999 through a reverse takeover on the Canadian Venture Exchange. Through a subsequent acquisition, the firm changed its name to Garda, the Gaelic term for police. Crétier saw an opportunity in consolidating a series of local investigation outfits and hiring high-profile experts, including Robert St-Jean, a 36-year veteran of the Montreal police force who headed up Quebec's crackdown on its notorious biker gangs.
Still, as recently as three years ago, Garda was so small--revenues of less than $10 million--that it wouldn't have shown up on a surveillance camera. Then, in 2003, the Mouvement des caissesDesjardins--Quebec's credit union giant--decided to get out of the armoured security business, which it had entered in the '80s by purchasing Brink's operations in the province.
Although Brink's has recently re-entered the Quebec market in a small way, the firm had at least one good reason to leave two decades ago. It's an infamous incident in Quebec political history known as "le coup de la Brinks." A few days before the 1970 provincial election, the first in which the separatist Parti Québécois ran candidates, a convoy of nine Brink's trucks was spotted leaving Royal Trust's Montreal headquarters, and was followed all the way to Toronto. It's still a hotly debated topic as to whether it was a publicity stunt staged by the trust company's anglophone management to scare Quebeckers out of voting for an indépendantiste party or, rather, the result of panicky clients requesting that their assets be transferred out of the province. Two things are beyond debate, though: First, the move created more bad publicity for Brink's than for the sovereigntist movement; and second, Brink's unwittingly buttered Crétier's bread.
Desjardins bypassed the big-name potential acquirers in choosing to sell its armoured truck division to homegrown Garda. Desjardins also gave the buyer a 10-year exclusive contract to transport cash and valuables for Desjardins's 600 branches and 1,500 ATMs, by far the largest network in the province. Overnight, Garda found itself with a 70% market share in la belle province. But the association with Desjardins had left the operation without any business from the chartered banks, which were loath to enrich a competitor. The result is that, in the rest of Canada, Brink's and Securicor still dominate the armoured security business. Not for long, Crétier promises. "One of my main strategies for the next 12 months is to get more business from the big banks," he says, noting that several bank contracts are up for renewal in 2006 and 2007.
Garda's shooting range is located in a high-security area in the basement of its headquarters. The room is outfitted with a sophisticated ventilation system to protect trainees from the noxious effects of firing countless rounds of lead from a .38 calibre handgun. Crétier boasts of having the best-trained guards in the business. So far, he hasn't lost a single one in a shootout. And to prevent that from ever happening, prospective guards, about 40% of whom are women, must participate in drills that simulate holdups. Many of the recruits drop out once they see what they're in for.
If Americans seem better suited to this kind of work--what with their sacred right to bear arms and all--Crétier is now challenging them for dominance on their home turf. Last fall, Garda made two stateside acquisitions in the cash-transport business--United Armored Services of Chicago for $23 million (U.S.) and Montana-based Security Armored Services for $12.4 million (U.S.). It's not immediately obvious why Garda would choose the Midwest as its beachhead. "I didn't want to be in a market whereI wasn't number one," explains Crétier. If Garda had made similar-sized acquisitions in New York, for instance, it would have remained a marginal player in a highly competitive market. In the Midwest, Crétier's already No. 1, with a bullet.
Crétier vows he'll soon make a couple add-on armoured-truck acquisitions in what is still a highly fragmented market. But what really gets him salivating is the possibility that the U.S. Transportation Security Administration will privatize airport security. Crétier predicts it will happen within three years. "And there is no company in North America better positioned than Garda to get those contracts." Garda already does 40% of the passenger and baggage screening in Canada under contracts with the Canadian Air Transport Security Authority for around 20 airports, including Toronto's Pearson International and Montreal's Trudeau International.
Whether the Yanks will allow a Canuck company to stand on guard at their airports remains to be seen. But Crétier, unlike many Canadian executives, seems to have a natural talent for doing business in the U.S. He's direct, frank and disarmingly open--the antithesis of the circumspect Canadian CEO. Take the subject of Garda's board of directors, which, uncharacteristically for the times, has only five members, including Crétier. He doesn't beat around the bush with a diplomatic defence. "I used to have a bigger board," he says, "but I soon found out that many weren't there for [Garda]; they were there just for the status that comes with being a director. The board I have now is very hands-on. Besides, look at Home Depot. No directors [except for the CEO] even bothered to show up for the annual meeting this year."
Garda's four outside directors--investment adviser Jean-Luc Landry, sports promoter François Plamondon, lawyer Pierre-Hubert Séguin and retired consultant Jacques Vasseur--have one good reason to show up for their company's AGM. Each of the first three has 100,000 in-the-money options, and Vasseur has 50,000. All can be exercised at prices not exceeding $3.55. With Garda's stock trading at around $22 in early August, those options are highly valuable. The stock traded as high as $27 before an equity issue earlier this year, up from $15 at the company's January, 2006, fiscal year-end. The low end of analysts' 52-week forecasts is around $28.
Crétier himself has not been shy about taking advantage of Garda's current darling stock status.In May, he sold a million of his 7.4 million shares, reaping $25 million. Not bad for a guy who started his company a decade earlier by taking out a $25,000 second mortgage on his house. "My banks love me now, but that wasn't the case five years ago," he says, again in deadpan style.
Crétier's ability to make quick calls--that umpire training, no doubt--helps explain Garda's quick-footedness in acquisitions. While many firms spend weeks doing due diligence, Garda completes the exercise with the precision and speed of a SWAT team. But is the firm ready to handle a curve ball? It doesn't take a private detective to figure out that Securitas, Group 4 Securicor and Brink's are all staking out the upstart competition from Canada. With their deep pockets, they can make life more difficult for Garda. Already, profit margins in some areas of the security business have been squeezed by competitive price-cutting. Then again, Crétier might not have to wait long before one of the big boys slaps a takeover offer on the table. At the rate Garda's been going, any one of them could figure it makes sense to take out the crafty Canadian now before he gets any further down the road toward world domination.
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